We maintain our BUY call on Kencana Petroleum (Kencana),with an unchanged fair value of RM3.54/share ' pegged to a CY12 PE of 22xagainst the merged Kencana-SapuraCrest's earnings. 

Kencana has secured its second contract this year, with aRM74mil job from ExxonMobil Exploration and Production Malaysia Inc tofabricate a Tapis R sub-structure for the Tapis ReDevelopment roject. Thisone-off contract, expected to be delivered in 2QCY13, involves the procurement,fabrication, testing, load-out and tie-down of sub-structures which includejacket, piles and related component which forms part of Tapis R centralprocessing platform, off the coast of Terengganu. 

Recall that Malaysia Marine & Heavy Engineering hasalready secured the main bulk of the Tapis enhanced oil recovery (EOR) projectwith a RM1.6bil contract to procure, fabricate, test, loadout, install andcommission an integrated offshore platform deck called Tapis R and twointerplatform deck in November last year. Hence, we do not expect furthercontracts from the Tapis EOR for Kencana, which clinched a RM101mil contractfrom Murphy to fabricate substructures, template & other services for thePatricia & Serendah platforms, SK309 field, off Bintulu just last week.

But we expect this small job to be just the start of thegroup's order book accretion, given Petronas' spending programme of RM300bilover the next five years, which includes enhanced oil recovery and marginalfield jobs. We understand that the group is expected to secure two well-headplatforms for the Bunga Dahlia and Teratai fields, connected to nine fields inBlocks PM301 and PM302 and in the Bergading contract area. Hence, whileKencana's total new orders secured to date since the start of FY12F amounts toRM1.2bil, we maintain FY12F-FY14F earnings based on annual new orders ofRM1.8bil-RM2bil.

We remain positive about Kencana's synergistic merger withSapuraCrest Petroleum, which may be completed in March-April this year. WhileKencana has been expanding its yard and commenced the construction of two newtender rigs, its merger partner has been penetrating new markets recently,notably Brazil. Recall that besides SapuraCrest's recent 50:50 JV with Seadrillto own, manage and operate three flexible pipe-lay support vessels, there couldbe a further injection of three semi-submersibles into the group's fleet. 

The stock currently trades at an attractive FY13F PE of 19x,below its 2007 peak of 22x.

Source: AmeSecurities